Ethereum has emerged as a prominent platform for decentralized applications (DApps) and smart contracts. As Ethereum’s popularity grows, so does the demand for Layer 2 (L2) scaling solutions to address the network’s scalability and high transaction fees. In May, Token Terminal data revealed that both Arbitrum and Optimism, two L2 networks built on Ethereum, paid significant supplier fees, reaching all-time highs.
Understanding Supplier Fees on L2 Networks
Ethereum’s L2 networks, such as Arbitrum and Optimism, operate as scaling solutions that aim to alleviate congestion and reduce transaction costs on the Ethereum mainnet. These L2 networks function as independent chains that leverage Ethereum’s security while offering faster and cheaper transactions. However, to utilize Ethereum’s security, L2 networks pay supplier fees to the Ethereum mainnet.
The Rise of Arbitrum’s Supplier Fees
Arbitrum, one of the prominent L2 networks, made headlines in May when it paid approximately $9 million in supplier fees to Ethereum. This significant sum indicates the growing adoption of Arbitrum and the increasing demand for L2 solutions. With more users and DApps leveraging the benefits of Arbitrum, the supplier fees reflect the network’s usage and the corresponding security costs associated with Ethereum.
Optimism’s Surge in Supplier Fees
Similarly, Optimism, another L2 network, experienced a surge in supplier fees, reaching around $4.5 million in May. This milestone demonstrates the network’s growth and adoption within the Ethereum ecosystem. As more projects integrate with Optimism, the supplier fees serve as a testament to the network’s increasing traction and the value it brings to Ethereum’s scalability.
Ethereum as SaaS 2.0: The Fee Structure
To better understand the supplier fees paid by Arbitrum and Optimism, it is crucial to grasp Ethereum’s role as a Software-as-a-Service (SaaS) 2.0 platform. Ethereum operates similarly to traditional SaaS models, where L2 networks pay a portion of the fees generated by their users to Ethereum, the underlying infrastructure provider. This fee structure ensures the security of L2 transactions and supports the Ethereum ecosystem’s sustainability.
Fee Allocation: Security and Profit
Under Ethereum’s SaaS 2.0 model, L2 networks typically bear approximately 80% of the fees generated by their users. This allocation primarily covers the security costs associated with Ethereum’s robust infrastructure. By designating the majority of fees for security, Ethereum ensures the integrity and reliability of L2 transactions.
The remaining 20% of the fees serves as profit for the L2 sequencer, the entity responsible for ordering and validating transactions on the L2 network. This profit incentivizes L2 sequencers to provide efficient and reliable transaction processing services while maintaining the overall health of the ecosystem.